The Balanced Budget Act of 1997 is set to balance the budget by 2002. American Public
Health Association (APHA) maintains that "the balanced budget is potentially
dangerous to public health since it threatens the existence and funding of many health and
environmental programs" (APHA, 1997). Teaching hospitals have felt the effect of the
Medicare cuts that were part of the Balanced Budget Act. As teaching hospitals are the key
providers of the nations charitable care, they are affected disproportionately by
cuts in government funding (Herbert, 1999).

There have been a number of government bailouts of hospitals in recent years due to the
financial crises the hospitals have been experiencing. A few examples include:

The Los Angeles County Hospital system is receiving $364 million in federal aid for the
purpose of restructuring and expanding the current system. Thirty-six new outpatient
clinics will be established as a first step. The ultimate goal of the restructuring is to
take the emphasis off expensive hospital treatment and put it on less costly preventative
care for the poor and uninsured of the county (Rabin, 1996).

San Diego General Hospital experienced a financial collapse in 1991 after they had
fallen further and further behind in unpaid bills to suppliers, taxing agencies and
mortgage payments to National Medical Enterprises from whom they purchased the hospital in
August of 1989. The hospital could have received certain federal bailout funding and
community support had it moved to non-profit status earlier. The hospital administrators
had agreed to convert status in theory but the move was never actually implemented (Roach,
1991).

New York hospitals received a lifeline of $1.25 billion of federal funds over five
years to do a complete overhaul of the system. The system has been put in these dire
straits by powerful health maintenance organizations that force reduced rates for their
private paying customers. Also, federal officials have been attempting to balance their
budgets by cutting billions of dollars in hospital payments. Critics of the fund say that
it is a waste of money because the hospital system is old, inefficient, and unable to
adapt to changes in the marketplace. The reason Governor Pataki and President Clinton have
approved this funding, however, is the risk involved in allowing the free market alone to
determine the fate of New York Hospitals: Struggling hospitals in low-income neighborhoods
would probably be the first to close, meaning that the poorest New Yorkers would be left
with little or no medical care (Hernandez, 1997).

Private

The Northeast region has a large concentration of hospitals associated with
universities, which are often slow to react to changing financial situations. It is not
uncommon for university hospitals to drag down the credit rating of the university as a
whole. Yet, some health facilities in that area are also primary employers, making it
"politically unpopular to close or consolidate them." One of the latest examples
is Georgetown University in Washington, D.C. (Meisler, 1998).

State

In order to save services such as obstetrics, in-patient childrens care and
urgent care Mayor Willie Brown has promised to make up a share of the $26 million deficit
at San Francisco General Hospital. The hospital is suffering financially because of cuts
in Medicare and Medi-Cal. The city is planning to contribute coverage for the
hospitals shortfall; however, it is too early in the budget process to know how much
(Torassa, 1999).

Pennsylvanias hospital sector also appears to be in financial trouble, with
Philadelphias systems suffering their worst losses in a decade and facilities in the
states western half showing an average negative operating margin and minimal cash
reserves. The University of Pennsylvania Health System posted a $90 million operating loss
last year, requiring a $123 million bailout from its parent, the University of
Pennsylvania (Health Line, 1999).